Invest in Food ETFs as Food Prices Reach Record High

Last week, in the discussion of EverBank MarketSafe Diversified Commodities CD, I mentioned that as food and oil prices keep going up, such products as the Commodities CD may be a way to invest commodities. Even though oil price has eased a little bit after breaking the $100/barrel level the first time since 2008, food prices remain at record high. Yesterday, an article in The Wall Street Journal said that the UN Food and Agriculture Organization’s global food price index registered its eighth consecutive monthly gain since last June to reach 236 point in February, an increase of 2.2% from the month before. 236-point is the highest reading of the benchmark since its creation in 1990. Even though the UN food agency thinks a food crisis this year is unlikely, it doesn’t rule out such a possibility in 2012, especially if the crude oil price reaches $200 a barrel as some have predicted.

Agriculture

The reason that MarketSafe Diversified Commodities CD can be a play with surging food prices is that the CD invests in food commodities such as soybeans, corn, and sugar. But that’s not the only option to invest in food, though it may be the safest because the CD is FDIC insured, which means you are guaranteed of not losing your principal. Exchange traded funds (ETFs) can also let you profit if supply-and-demand continues to push food prices higher. Of course, as an investment option, investing in ETFs carries much greater risk than simply buying a CD, but the rewards could also be much higher as shown in the table below.

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Agriculture and Food ETFs

In the ETF arena, there are basically two types of ETF/ETN (exchange traded notes) you can play with higher food costs. One directly invests in the agriculture business, either companies involve in agriculture or agriculture commodity future contracts. The other invests in consumer stables instead.  In the first category, you can find six ETFs/ETNs that are in the agriculture business:

  • Market Vectors Agribusiness ETF (MOO): MOO seeks to replicate the price and yield performance of the DAXglobal Agribusiness Index, a modified market capitalization-weighted index that is designed to track the movements of securities of companies involved in the agriculture business traded on leading global exchanges.
  • PowerShares DB Agriculture Fund (DBA): DBA tracks the DBIQ Diversified Agriculture Index Excess Return. The index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities, such as coca, coffee, corn, sugar, and soybeans.
  • iPath DJ-UBS Agriculture TR Sub-Idx ETN (JJA): JJA seeks to replicate the performance of a basket of futures contracts on physical commodities in the Dow Jones-UBS Agriculture Subindex Total Return Index. The Index is currently composed of seven futures contracts on agricultural commodities traded on U.S. exchanges.
  • E-TRACS UBS CMCI Food TR ETN (FUD): FUD tracks the performance of the UBS Bloomberg CMCI Food Index Total Return Index. The index measures the collateralized returns from a basket of 11 futures contracts from the agricultural and livestock sectors.
  • E-Tracs UBS Bloomberg CMCI Agriculture ETN (UAG): UAG is designed to track the performance of the UBS Bloomberg CMCI Agriculture Index Total Return Index, which measures the collateralized returns from a basket of 10 futures contracts representing the agricultural sector.
  • Elements Rogers International Commodity Agriculture ETN (RJA): RJA tracks the Rogers International Commodity Index-Agriculture Total Return Index. The Index represents the value of a basket of 20 agricultural commodity futures contracts.

Three ETFs/ETNs in the second category are:

  • PowerShares Dynamic Food & Beverage (PBJ): PBJ is based on the Dynamic Food & Beverage Intellidex Index, which is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors.
  • Consumer Staples Select Sector SPDR (XLP): XLP seeks to closely match the returns and characteristics of the Consumer Staples Select Sector Index. Companies in this sector are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products.
  • iShares Dow Jones U.S. Consumer Goods Sector Index Fund (IYK): IYK seeks investment results that correspond generally to the price and yield performance of U.S. consumer goods stocks, as represented by the Dow Jones U.S. Consumer Goods Index.

Some basic information about these funds are listed in the following table. All data are from Morningstar.

Agriculture and Food ETFs

NameSymbolCurrent PriceYield Expense1-Year Return
Market Vectors Agribusiness ETF MOO$56.630.59%0.5625.92%
PowerShares DB Agriculture Fund DBA$35.440.0%0.75%39.30%
iPath DJ-UBS Agriculture TR Sub-Idx ETNJJA$67.870.0%0.75%58.71%
E-TRACS UBS CMCI Food TR ETNFUD$31.080.0%0.65%50.05%
E-Tracs UBS Bloomberg CMCI Agriculture ETN UAG$32.550.0%0.65%N/A
Elements Rogers International Commodity Agriculture ETNRJA$11.760.0%0.75%54.05%
PowerShares Dynamic Food & Beverage PBJ$18.541.13%0.63%24.27%
Consumer Staples Select Sector SPDRXLP$29.712.57%0.20%10.64%
iShares Dow Jones U.S. Consumer Goods Sector Index FundIYK$65.792.11%0.48%15.60%
Basic information and comparison of agriculture and food ETFs/ETNs

If you are not familiar with ETFs, I have a post on how to buy ETFs which explains the basic ideas of what ETFs are and how and where to buy ETFs.

Photo credit: rogiro

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